83 FR 6624 - Self-Regulatory Organizations; The Depository Trust Company; Order Approving Proposed Rule Change To Amend Procedures in the DTC Settlement Service Guide Relating to the Intra-Month Collection of Required Participants Fund Deposits

SECURITIES AND EXCHANGE COMMISSION

Federal Register Volume 83, Issue 31 (February 14, 2018)

Page Range		6624-6626
FR Document		2018-02977
Federal Register, Volume 83 Issue 31 (Wednesday, February 14, 2018)
[Federal Register Volume 83, Number 31 (Wednesday, February 14, 2018)]
[Notices]
[Pages 6624-6626]
From the Federal Register Online  [www.thefederalregister.org]
[FR Doc No: 2018-02977]


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SECURITIES AND EXCHANGE COMMISSION

[Release No. 34-82662; File No. SR-DTC-2017-024]


Self-Regulatory Organizations; The Depository Trust Company; 
Order Approving Proposed Rule Change To Amend Procedures in the DTC 
Settlement Service Guide Relating to the Intra-Month Collection of 
Required Participants Fund Deposits

February 8, 2018.
    On December 22, 2017, the Depository Trust Corporation (``DTC'') 
filed with the Securities and Exchange Commission (``Commission'') 
proposed rule change SR-DTC-2017-024, pursuant to Section 19(b)(1) of 
the Securities Exchange Act of 1934 (``Act'') \1\ and Rule 19b-4 
thereunder.\2\ The proposed rule change was published for comment in 
the Federal Register on January 9, 2018.\3\ The Commission did not 
receive any comment letters on the proposed rule change. For the 
reasons discussed below, the Commission approves the proposed rule 
change.
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    \1\ 15 U.S.C. 78s(b)(1).
    \2\ 17 CFR 240.19b-4.
    \3\ Securities Exchange Act Release No. 82434 (January 3, 2018), 
83 FR 1046 (January 9, 2018) (SR-DTC-2017-024) (``Notice'').
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I. Description of the Proposed Rule Change

    The proposed rule change would amend DTC's Settlement Service Guide 
(``Guide'') \4\ to (1) codify more completely DTC's current practices 
regarding when a DTC participant (``Participant'') \5\ must deposit 
cash at DTC to satisfy an intra-month deficiency in the Participant's 
required contribution to DTC's Participants Fund \6\ (``Deficiency''), 
and (2) make technical and clarifying changes to the Guide, as more 
fully described below.
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    \4\ Available at https://www.dtcc.com/~/media/Files/Downloads/
legal/service-guides/Settlement.pdf.
    \5\ ``Participant'' is defined in the DTC Rules, Bylaws, 
Organization Certificate (``Rules'') as an entity to which DTC 
offers its services pursuant to the Rules, available at http://www.dtcc.com/legal/rules-and-procedures?pgs=1.
    \6\ The Participants Fund is the fund in which DTC collects and 
holds cash from Participants in order to maintain sufficient 
liquidity resources in the event of a Participant default. Notice, 
83 FR at 1047.
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A. Background

    DTC requires Participants to contribute an aggregate amount of 
$1.15 billion to the Participants Fund.\7\ That amount is collected 
through two components of the Participants Funds, the Core Fund and the 
Liquidity Fund, to which Participants must contribute, as 
applicable.\8\
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    \7\ Guide, supra note 4 at 48; Notice, 83 FR at 1047.
    \8\ See Guide, supra note 4 at 48-50 (explaining the components 
of the Participants Fund); see also Notice, 83 FR at 1047.
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    DTC sets the total value of the Core Fund at $450 million, which is 
collected through two underlying funds: The Base Fund and the 
Incremental Fund.\9\ Each Participant is required to contribute a 
minimum of $7,500 to the Base Fund.\10\ Meanwhile, the Incremental Fund 
makes up the difference, if any, between the aggregate amount collected 
in the Base Fund and the total $450 million of the Core Fund. If there 
is a difference, DTC allocates the difference proportionally among all 
Participants.\11\
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    \9\ See Guide, supra note 4 at 48.
    \10\ Id.; Notice, 83 FR at 1047.
    \11\ Guide, supra note 4 at 48. A Participant's contribution to 
the Incremental Fund is based on the average of the Participant's 
six largest intra-day liquidity exposures at DTC, over a rolling 60-
business-day period. Id.; Notice, 83 FR at 1047.
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    DTC sets the total value of the Liquidity Fund at $700 million.\12\ 
The Liquidity Fund is allocated proportionately among Participants with 
affiliated families,\13\ where the affiliated families have been 
authorized by DTC to have over $2.15 billion in intraday debits.\14\
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    \12\ Guide, supra note 4 at 49.
    \13\ The Rules define an ``affiliated family'' as each 
Participant that controls (or is controlled by another Participant 
that has) direct or indirect ownership of more than 50 percent of 
the voting securities (or voting interests) of another Participant, 
and each such Participant is under the common control of the same 
entity. Supra note 5 at 2.
    \14\ Guide, supra note 4 at 49; Notice, 83 FR at 1047.
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    The aggregate amount that a Participant is required to contribute 
to the Participants Fund is the Participant's Required Participants 
Fund Deposit (hereinafter, ``Required Deposit'').\15\ In addition, 
Participants may make voluntary deposits to the Participants Fund, 
which DTC refers to as Voluntary Participants Fund Deposits 
(hereinafter, ``Voluntary Deposit'').\16\ A Participant may choose to 
make a Voluntary Deposit in anticipation of

[[Page 6625]]

potential increases to its Required Deposit.\17\
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    \15\ Guide, supra note 4 at 47-48; Notice, 83 FR at 1047.
    \16\ Guide, supra note 4 at 47; Notice, 83 FR at 1047.
    \17\ Notice, 83 at 1047. A Participant's Required Deposit may 
fluctuate based on the liquidity exposure associated with the 
Participant's settlement activity. See Guide, supra note 4 at 51. 
The Guide provides that when a Participant's Required Deposit has 
decreased, the Participant may choose to leave excess cash in the 
Participants Fund to reduce the level of administration that would 
otherwise be necessary should the Participant's Required Deposit 
later increase. Id. DTC also accepts Voluntary Deposits for such 
administrative purposes. Id.
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    A Participant's deposits to the Participants Fund, including both 
Required Deposits and Voluntary Deposits, if any, are considered the 
Participant's Actual Participants Fund Deposits (hereinafter, ``Actual 
Deposits'').\18\ DTC can use a Participant's Actual Deposits to cover 
losses associated with the Participant's default.\19\
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    \18\ Notice, 83 FR at 1047.
    \19\ Id.
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    DTC calculates the Required Deposit of each Participant on a daily 
basis.\20\ However, DTC states that Required Deposits generally do not 
materially change on a daily basis because the calculation uses a 60-
business-day rolling average.\21\ Therefore, DTC generally only 
collects funds to cover a Deficiency, if any, on a monthly basis--
specifically, on the last business day of the month.\22\
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    \20\ Id.
    \21\ Id.
    \22\ Id.
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    Notwithstanding the above, DTC will require a Participant to 
satisfy an intra-month Deficiency if, when considering the Reference 
Amount, described below, the Deficiency meets or exceeds either the 
Standard Threshold or the Watch List Threshold, also described below.
    The Reference Amount is the most recent Required Deposit amount 
that the Participant deposited to the Participants Fund, as compared to 
the Required Deposit amount that DTC calculates on a daily basis but 
does not necessarily require an intra-month deposit.\23\ More 
specifically, the Reference Amount is the amount that the Participant 
deposited to the Participants Fund based upon a Required Deposit as 
calculated on (1) the last business day of the prior month, (2) the 
most recent intra-month business day when the Participant's Deficiency 
met or exceeded the Standard Threshold or the Watch List Threshold, as 
described below, or (3) the most recent intra-month business day when 
DTC collected an ``adequate assurance'' charge under Rule 9(A) of the 
Rules.\24\
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    \23\ See Guide, supra note 4 at 50-51 (explaining daily 
calculations of the Required Deposit); see also Notice, 83 FR at 
1048.
    \24\ Notice, 83 FR at 1048. Pursuant to Rule 9(A) of the Rules, 
if DTC is concerned with a Participant's operational or financial 
soundness, DTC may require adequate assurances of financial or 
operational capacity from the Participant. Id.; see also Rules, 
supra note 5, Rule 9(A), Section 2 (stating ``At the request of 
[DTC],'' a Participant ``shall immediately furnish [DTC] with such 
assurances as [DTC] shall require of the financial ability of the 
Participant . . . including deposits to the Participants Fund'').
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    The Standard Threshold for determining when a Participant must 
satisfy an intra-month Deficiency is when (1) the difference between 
the Participant's current Required Deposit calculation and the 
Reference Amount equals or exceeds $500,000 and (2) the difference is 
at least a 25 percent increase over the Reference Amount.\25\
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    \25\ Notice, 83 FR at 1048.
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    The Watch List Threshold for determining when a Participant must 
satisfy an intra-month Deficiency is when (1) the Participant is on 
DTC's ``Watch List'' \26\ and (2) the difference between the 
Participant's current Required Deposit calculation and the Reference 
Amount is at least a 10 percent increase over the Reference Amount.\27\
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    \26\ Notice, 83 FR at 1048. The Watch List is a list of 
Participants with credit risk rating of ``5,'' ``6,'' or ``7,'' as 
calculated by DTC's Credit Risk Rating Matrix, as well as 
Participants that, based on DTC's consideration of relevant factors, 
are deemed by DTC to pose a heightened risk to DTC and its 
Participants. Id. at 1047. These factors include (i) quantitative 
factors, such as capital, assets, earnings, and liquidity, and (ii) 
qualitative factors, such as management quality, market position/
environment, and capital and liquidity risk management. Id.
    \27\ Id. at 1048-49.
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B. Proposed Changes to the Guide

    The Guide currently does not define the Reference Amount used for 
the purpose of determining the Standard Threshold and Watch List 
Threshold, nor does the Guide describe the Watch List Threshold.\28\ As 
such, DTC proposes to codify in the Guide its current processes for (1) 
determining the Reference Amount for each Participant and (2) applying 
the Watch List Threshold, as described above.\29\
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    \28\ Id. at 1047.
    \29\ Id.
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    DTC also proposes to modify the Guide to (1) revise and re-order 
text for enhanced readability and flow of content, (2) add subheadings, 
(3) revise informal references to terms already defined in the Rules to 
use the actual defined terms, and (4) make grammatical corrections.\30\
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    \30\ Id. at 1049.
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II. Discussion and Commission Findings

    Section 19(b)(2)(C) of the Act \31\ directs the Commission to 
approve a proposed rule change of a self-regulatory organization if it 
finds that such proposed rule change is consistent with the 
requirements of the Act and rules and regulations thereunder applicable 
to such organization. The Commission believes the proposal is 
consistent with Act, specifically Section 17A(b)(3)(F) of the Act and 
Rule 17Ad-22(e)(23)(ii) under the Act.\32\
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    \31\ 15 U.S.C. 78s(b)(2)(C).
    \32\ 15 U.S.C. 78q-1(b)(3)(F); 17 CFR 240.17Ad-22(e)(23)(ii).
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    Section 17A(b)(3)(F) of the Act requires, in part, that the rules 
of the clearing agency be designed to assure the safeguarding of 
securities and funds which are in the custody or control of the 
clearing agency or for which it is responsible.\33\ As described above, 
the proposed rule change would codify DTC's practices regarding the 
Reference Amount and the Watch List Threshold. By adding these 
provisions to the Guide, the Guide would provide greater transparency 
to Participants regarding the criteria DTC uses to determine whether a 
Participant must increase its Required Deposit on an intra-month basis 
because of a Deficiency.
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    \33\ 15 U.S.C. 78q-1(b)(3)(F).
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    By providing Participants with such enhanced transparency, the 
proposal is designed to enable Participants to better anticipate when 
an intra-month deposit may be necessary. This increased foresight would 
help improve the likelihood that Participants are ready and able to 
make the deposit. As such, the proposal would help ensure that the 
Participants Fund is adequately funded and, thus, the appropriate 
amount of Actual Deposits is available to DTC, if it should need to 
manage a Participant default. Therefore, the Commission finds that the 
proposed rule change would help assure the safeguarding of securities 
and funds which are in the custody or control of DTC or for which it is 
responsible, consistent with Section 17A(b)(3)(F) of the Act.\34\
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    \34\ Id.
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    Section 17A(b)(3)(F) of the Act also requires, in part, that the 
rules of the clearing agency be designed to promote the prompt and 
accurate clearance and settlement of securities transactions.\35\ As 
described above, the proposed rule change also includes technical and 
clarifying changes to the text of the Guide that would enhance 
readability, make grammatical corrections, and add new section 
headings. These changes

[[Page 6626]]

would increase the precision and clarity of the Guide. This increased 
precision and clarity would help facilitate Participants' ability to 
better understand their respective rights and obligations regarding 
DTC's clearance and settlement of securities transactions. Accordingly, 
the Commission finds that the proposed changes would promote the prompt 
and accurate clearance and settlement of securities transactions, 
consistent with the requirements of Section 17A(b)(3)(F) of the 
Act.\36\
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    \35\ Id.
    \36\ Id.
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    Rule 17Ad-22(e)(23)(ii) under the Act requires DTC to establish, 
implement, maintain and enforce written policies and procedures 
reasonably designed to provide sufficient information to enable 
Participants to identify and evaluate the risks and material costs they 
incur by participating in DTC.\37\ As described above, the proposed 
rule change would (1) increase the Guide's transparency regarding DTC's 
procedures for the intra-month calculation of Required Deposits and (2) 
make other technical and clarifying changes to increase the Guide's 
readability. Increased transparency around a Participant's required 
intra-month deposit to the Participants Fund to satisfy a Deficiency, 
as well as the increased clarity in the readability of the Guide, are 
each changes that are designed to provide Participants with sufficient 
information to identify and evaluate risks and material costs in 
connection with their Required Deposit as participants of DTC. 
Therefore, the Commission finds that the proposed rule change is 
consistent with Rule 17Ad-22(e)(23)(ii).\38\
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    \37\ 17 CFR 240.17Ad-22(e)(23)(ii).
    \38\ Id.
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III. Conclusion

    On the basis of the foregoing, the Commission finds that the 
proposal is consistent with the requirements of the Act, in particular 
the requirements of Section 17A of the Act \39\ and the rules and 
regulations thereunder.
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    \39\ 15 U.S.C. 78q-1.
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    It is therefore ordered, pursuant to Section 19(b)(2) of the Act, 
that proposed rule change SR-DTC-2017-024 be, and hereby is, 
approved.\40\
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    \40\ In approving the proposed rule change, the Commission 
considered the proposals' impact on efficiency, competition, and 
capital formation. 15 U.S.C. 78c(f).

    For the Commission, by the Division of Trading and Markets, 
pursuant to delegated authority.\41\
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    \41\ 17 CFR 200.30-3(a)(12).
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Eduardo A. Aleman,
Assistant Secretary.
[FR Doc. 2018-02977 Filed 2-13-18; 8:45 am]
 BILLING CODE 8011-01-P
6626 Federal Register / Vol. 83, No. 31 / Wednesday, February 14, 2018 / Notices

would increase the precision and clarity For the Commission, by the Division of self-regulatory organization consents,
of the Guide. This increased precision Trading and Markets, pursuant to delegated the Commission shall either approve the
authority.41 proposed rule change, disapprove the
and clarity would help facilitate
Participants’ ability to better understand Eduardo A. Aleman, proposed rule change, or institute
their respective rights and obligations Assistant Secretary. proceedings to determine whether the
regarding DTC’s clearance and [FR Doc. 2018–02977 Filed 2–13–18; 8:45 am] proposed rule change should be
settlement of securities transactions. BILLING CODE 8011–01–P disapproved. The 45th day for this filing
Accordingly, the Commission finds that is February 9, 2018.
The Commission is extending the 45-
the proposed changes would promote
SECURITIES AND EXCHANGE day time period for Commission action
the prompt and accurate clearance and
COMMISSION on the proposed rule change. The
settlement of securities transactions, Commission finds that it is appropriate
consistent with the requirements of [Release No. 34–82666; File No. SR–ISE–
2017–106]
to designate a longer period within
Section 17A(b)(3)(F) of the Act.36 which to take action on the proposed
Rule 17Ad–22(e)(23)(ii) under the Act Self-Regulatory Organizations; Nasdaq rule change so that it has sufficient time
requires DTC to establish, implement, ISE, LLC; Notice of Designation of to consider and take action on the
maintain and enforce written policies Longer Period for Commission Action Exchange’s proposed rule change.
and procedures reasonably designed to on Proposed Rule Change To Permit Accordingly, pursuant to Section
provide sufficient information to enable the Listing and Trading of NQX Index 19(b)(2) of the Act 6 and for the reasons
Participants to identify and evaluate the Options on a Pilot Basis stated above, the Commission
risks and material costs they incur by designates March 26, 2018, as the date
participating in DTC.37 As described
February 8, 2018. by which the Commission should either
On December 6, 2017, Nasdaq ISE, approve or disapprove, or institute
above, the proposed rule change would
LLC (‘‘ISE’’ or ‘‘Exchange’’) filed with proceedings to determine whether to
(1) increase the Guide’s transparency
the Securities and Exchange disapprove, the proposed rule change
regarding DTC’s procedures for the Commission (‘‘Commission’’), pursuant (File No. SR–ISE–2017–106).
intra-month calculation of Required to Section 19(b)(1) of the Securities
Deposits and (2) make other technical For the Commission, by the Division of
Exchange Act of 1934 (‘‘Act’’) 1 and Rule Trading and Markets, pursuant to delegated
and clarifying changes to increase the 19b–4 thereunder,2 a proposed rule authority.7
Guide’s readability. Increased change to permit the listing and trading Eduardo A. Aleman,
transparency around a Participant’s of options based on 1⁄5 the value of the Assistant Secretary.
required intra-month deposit to the Nasdaq-100 Index on a pilot basis. The [FR Doc. 2018–02981 Filed 2–13–18; 8:45 am]
Participants Fund to satisfy a proposed rule change was published for BILLING CODE 8011–01–P
Deficiency, as well as the increased comment in the Federal Register on
clarity in the readability of the Guide, December 26, 2017.3 On January 31,
are each changes that are designed to 2018, the Exchange filed Amendment SECURITIES AND EXCHANGE
provide Participants with sufficient No. 1 to the proposed rule change.4 The COMMISSION
information to identify and evaluate Commission has received no comment
letters on the proposal. [Release No. 34–82670; File Nos. SR–DTC–
risks and material costs in connection 2017–022; SR–FICC–2017–022; SR–NSCC–
with their Required Deposit as Section 19(b)(2) of the Act 5 provides 2017–018]
participants of DTC. Therefore, the that within 45 days of the publication of
Commission finds that the proposed notice of the filing of a proposed rule Self-Regulatory Organizations; The
rule change is consistent with Rule change, or within such longer period up Depository Trust Company; Fixed
17Ad–22(e)(23)(ii).38 to 90 days as the Commission may Income Clearing Corporation; National
designate if it finds such longer period Securities Clearing Corporation;
III. Conclusion to be appropriate and publishes its Notice of Designation of Longer Period
reasons for so finding or as to which the for Commission Action on Proposed
On the basis of the foregoing, the
Rule Changes To Amend the Loss
Commission finds that the proposal is 41 17 CFR 200.30–3(a)(12). Allocation Rules and Make Other
consistent with the requirements of the 1 15 U.S.C. 78s(b)(1).
Changes
Act, in particular the requirements of 2 17 CFR 240.19b–4.
3 See Securities Exchange Act Release No. 82362
Section 17A of the Act 39 and the rules February 8, 2018.
(December 19, 2017), 82 FR 61090.
and regulations thereunder. 4 In Amendment No. 1, the Exchange revised its
On December 18, 2017, The
It is therefore ordered, pursuant to proposal to: (1) Add that raw percentage price Depository Trust Company (‘‘DTC’’),
Section 19(b)(2) of the Act, that change data as well as percentage price change data Fixed Income Clearing Corporation
normalized for prevailing market volatility, as (‘‘FICC’’), and National Securities
proposed rule change SR–DTC–2017– measured by an appropriate index as agreed by the Clearing Corporation (‘‘NSCC’’)
024 be, and hereby is, approved.40 Commission and the Exchange, would be provided
as part of the pilot data; and (2) revise the proposed (collectively, ‘‘Clearing Agencies’’), each
duration of the pilot program such that the pilot filed with the Securities and Exchange
would terminate on the earlier of: (i) Twelve Commission (‘‘Commission’’) a
months following the date of the first listing of the proposed rule change to amend the loss
options; or (ii) June 30, 2019. When the Exchange
allocation rules and make other changes
daltland on DSKBBV9HB2PROD with NOTICES

36 Id.
filed Amendment No. 1 with the Commission, it
37 17 CFR 240.17Ad–22(e)(23)(ii). also submitted Amendment No. 1 to the public (SR–DTC–2017–022, SR–FICC–2017–
38 Id. comment file for SR–ISE–2017–106 (available at: 022, and SR–NSCC–2017–018),
39 15
https://www.sec.gov/comments/sr-ise-2017-106/ respectively (‘‘Proposed Rule Changes’’),
U.S.C. 78q–1. ise2017106.htm). Because Amendment No. 1 does
40 In approving the proposed rule change, the not materially alter the substance of the proposed pursuant to Section 19(b)(1) of the
Commission considered the proposals’ impact on rule change or raise unique or novel regulatory
efficiency, competition, and capital formation. 15 issues, it is not subject to notice and comment. 6 15 U.S.C. 78s(b)(2).
U.S.C. 78c(f). 5 15 U.S.C. 78s(b)(2). 7 17 CFR 200.30–3(a)(31).

VerDate Sep<11>2014 22:07 Feb 13, 2018 Jkt 244001 PO 00000 Frm 00120 Fmt 4703 Sfmt 4703 E:\FR\FM\14FEN1.SGM 14FEN1
Document Created: 2018-02-14 03:59:28
Document Modified: 2018-02-14 03:59:28
Category		Regulatory Information
Collection		Federal Register
sudoc Class		AE 2.7: GS 4.107: AE 2.106:
Publisher		Office of the Federal Register, National Archives and Records Administration
Section		Notices
FR Citation		83 FR 6624